Definition of the Office of Thrift Supervision (OTS)
Let me explain what the Office of Thrift Supervision was: it operated as a bureau within the U.S. Treasury Department, tasked with issuing and enforcing regulations for the nation's savings and loan industry. You should know that in 2011, the OTS merged with other key agencies, including the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board of Governors, and the Consumer Financial Protection Bureau (CFPB).
Understanding the OTS
As I see it, this bureau played a critical role in safeguarding deposits in thrift banks. It achieved this by conducting audits and inspections to verify compliance with government regulations and policies. You can think of it as the watchdog ensuring everything ran smoothly in that sector.
How the OTS Worked
The Office of Thrift Supervision, which succeeded the Federal Home Loan Bank Board, was created by Congress in 1989 to act as the main federal regulator for all federal and state-chartered savings institutions in the Savings Association Insurance Fund (SAIF). I want you to understand that the OTS issued federal charters for savings and loan associations and savings banks, and it adopted and enforced regulations to make sure these thrift institutions operated safely and soundly, as per the Treasury Department.
This agency emerged right after the savings and loan (S&L) crisis, which kicked off in the volatile interest rate environment of the 1970s. During that time, huge numbers of depositors pulled their money from S&L institutions and moved it to money market funds. To stay afloat, S&Ls turned to high-risk activities like commercial real estate lending and junk bond investments. Depositors kept pouring money in because their funds were insured by the Federal Savings and Loan Insurance Corporation (FSLIC).
Widespread corruption and other issues eventually caused the FSLIC to go insolvent, leading to a $124 billion bailout for junk bond investments and the liquidation of over 700 S&Ls by the Resolution Trust Corporation. From my perspective, the OTS stepped in to enforce tougher regulations, shutting down hundreds of failing institutions. As a result, the number of thrift banks has dropped significantly—from nearly 4,000 in the 1980s to fewer than 1,000 by 2018.
What Are Thrifts?
Thrifts are essentially savings and loan associations, but the term also covers credit unions and mutual savings banks that offer various saving and loan services. Here's a key difference for you: unlike commercial banks, thrifts can borrow from the Federal Home Loan Bank System, which lets them pay higher interest to members. Due to their charter, thrifts must prioritize housing-related assets and be members of the Federal Home Loan Bank System.
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